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May 16, 2012

Beware of Stock Scams Tied to ‘Natural’ Products, FINRA Warns

Con artists behind these ‘pump and dump’ scams can sell off investors’ shares, leaving them with worthless stock

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The alert, Nutraceutical Stock Scams—Don't Supplement Your Portfolio With These Companies, warns investorsthat "con artists behind nutraceutical stock scams may try to lure in investors with optimistic and potentially false and misleading information that in turn creates unwarranted demand for shares of small, thinly traded companies that often have little or no history of financial success."

The con artists behind these “pump and dump” scams, the alert says, can then sell off their shares, leaving investors with worthless stock.

Like many investment scams, pitches for nutraceutical stocks may arrive in a variety of ways—from cold calls to e-mail, tweets, blogs or message board posts, the alert warns.

While some nutraceutical companies are legitimate, others could be bogus operations with the potential to harm unsuspecting investors.

The alert says one company claimed to have acquired rights to “all-natural” medicines that treat maladies ranging from the common cold to kidney disease.

The company claimed it had “the potential to capture 3% of the U.S. market within a three-year period” and “potentially generate $100,000,000 in revenues,” the alert says. FINRA’s alert says that investors who took a look at the company’s unaudited financials would have found a firm with almost no cash on hand and no track record of sales.

“While nutraceuticals claim to help people become healthy, investing in some of the companies associated with these products can make investors’ portfolios sick,” said Gerri Walsh, FINRA’s Vice President for Investor Education, in a statement. “The best way investors can inoculate themselves against investment scams is to ask and check. Find out whether the promoter is licensed using FINRA BrokerCheck, and check out the investment using the Securities and Exchange Commission's EDGAR database of company filings.”